# Interest Rate Model

Pawnfi’s interest rate strategy is calibrated to manage liquidity risk and optimize utilization. The borrow interest rates come from the Utilization Rate U.

U is an indicator of the availability of capital in the pool. The interest rate model is used to manage liquidity risk through allocating user incentivizes to support liquidity:

When capital is sufficient: low interest rates to encourage loans.

When capital is scarce: high interest rates to encourage repayments for loans and additional supplies.

**Normal Model**

**Normal Model**

The supplying rate's calculation depends on something called an **interest rate model** — the algorithmic model to determine a money market's demand and supply rates.

This interest rate model takes in two parameters:

Base rate per year, the minimum borrowing rate

Multiplier per year, the rate of increase in interest rate with respect to utilization

**Borrow Rate**

= Base + Multiplier x Utilization Rate

**Supply Rate**

= Borrow Rate x (1-Reserve Factor) x Utilization Rate

## Jump Rate Model

Liquidity risk materializes when utilization is high, its becomes more problematic as U gets closer to 100%. To tailor the model to this constraint, some markets follow what is known as the "Jump Rate model”. This model has the standard parameters:

Base rate per year, the minimum demand rate

Multiplier per year, the rate of increase in interest rate with respect to utilization

but it also introduces two new parameters:

Kink, the point in the model in which the model follows the jump multiplier

Jump Multiplier per year, the rate of increase in interest rate with respect to utilization after the "Kink"

**Borrow Rate**

= Base + Multiplier x Min(Utilization Rate, Kink) + Jump Multiplier x Max(Utilization Rate - Kink, 0)

**Supply Rate**

= Borrow Rate x (1-Reserve Factor) x Utilization Rate

Currently all the token markets are designed as Jump Rate Model.

## Latest Interest Rate Table

Name | Symbol | Interest Rate Model | Base | Multiplier | Kink | Jump Multiplier | Reserve Factor |
---|---|---|---|---|---|---|---|

| |||||||

Tether USD | USDT | Jump Rate Model | 0% | 5% | 80% | 109% | 7.5% |

USD Coin | USDC | Jump Rate Model | 0% | 5% | 80% | 109% | 7.5% |

DAI | DAI | Jump Rate Model | 0% | 5% | 80% | 109% | 15% |

Ethereum | ETH | Jump Rate Model | 2% | 18% | 80% | 100% | 20% |

Wrapped BTC | WBTC | Jump Rate Model | 2% | 22.5% | 80% | 100% | 20% |

Lido Staked Ethereum | stETH | Jump Rate Model | 2% | 18% | 75% | 100% | 20% |

Staked Ape Coin | sAPE | N/A | N/A | N/A | N/A | N/A | N/A |

| |||||||

Bored Ape Yacht Club | P-BAYC | Jump Rate Model | 2% | 22.5% | 70% | 150% | 20% |

Mutant Ape Yacht Club | P-MAYC | Jump Rate Model | 2% | 22.5% | 70% | 150% | 20% |

Bored Ape Kennel Club | P-BAKC | Jump Rate Model | 2% | 22.5% | 70% | 150% | 20% |

Azuki | P-AZUKI | Jump Rate Model | 2% | 22.5% | 70% | 150% | 20% |

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